Difference between provision and reserve.

Banking & FinanceManagementCompanies/Organisations

The major differences between provision and reserve are as follows −

ProvisionReserve
  • Means to provide for a future excepted loss/liability.

  • Charge against profits.

  • Provides for anticipated losses / excepted liabilities.

  • No need of profits for provisions creation.

  • As per GAAP.

  • Dividends are not paid.

  • Provisions are used for which they created.

  • Shows both sides and balance sheet.

  • Meets specific loss or an accruing liability.

  • Made by debiting P&L account

  • Mandatory to create provisions.

  • Can’t be used to invest outside business.

  • Retain profit for future use

  • Charge against appropriation of profits.

  • Increase capital employed.

  • For creation of reserves, profit should present.

  • Optional.

  • Dividends can be paid.

  • Can be used otherwise.

  • Shows on liability side in balance sheet.

  • Strengthens financial position.

  • Made by debiting P&L of appropriate account.

  • Not mandatory to create reserves.

  • Used to invest outside business.

raja
Published on 25-Jul-2020 10:14:57
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